Valuing Intrinsic and Instrumental Preferences for Privacy

49 Pages Posted: 25 Jun 2019 Last revised: 24 Aug 2020

See all articles by Tesary Lin

Tesary Lin

Boston University - Department of Marketing; University of Chicago - Marketing Management

Date Written: June 29, 2019

Abstract

I empirically separate two motives for consumers to protect privacy: an intrinsic motive, which is a “taste” for privacy; and an instrumental motive, which reflects the expected economic losses from revealing one’s private information to the firm. While the intrinsic preference is a utility primitive, the instrumental preference arises endogenously from a firm’s usage of consumer data. Combining a two-stage experiment and a structural model, I find that consumers’ intrinsic preferences for privacy range from 0 to 5 dollars per demographic variable, exhibiting substantial heterogeneity across consumers and categories of personal data. This rich heterogeneity in intrinsic preferences dominates the magnitude of instrumental preferences in my experiment. Consumers self-select into sharing their personal data, driven by the combination of these two preference components. The resulting selection pattern deviates from the “nothing-to-hide” argument, a prediction given by models with pure instrumental preferences. I then evaluate two strategies that firms may adopt to correct for biases caused by this privacy-induced selection when collecting and analyzing consumer data. Both strategies can effectively alleviate bias when consumer data are used for inference.

Keywords: Privacy, Revealed Preference, Value of Data, Experiment, Selection, Bias

JEL Classification: D01, D12, D82, D83, L11, L15, M31, M38

Suggested Citation

Lin, Tesary, Valuing Intrinsic and Instrumental Preferences for Privacy (June 29, 2019). Available at SSRN: https://ssrn.com/abstract=3406412 or http://dx.doi.org/10.2139/ssrn.3406412

Tesary Lin (Contact Author)

Boston University - Department of Marketing ( email )

United States

University of Chicago - Marketing Management ( email )

Chicago, IL 60637
United States

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